Analyst Cuts Targets for Air Canada and WestJet as Fuel Prices Rise

The recent run up on jet fuel prices has Cameron Doerksen, Versant Partners analyst, lowering his estimates for both of the Canada’s largest airlines. Jet fuel prices are currently sitting at about $1 a liter, up from $0.66 at this time last year, but Versant expects the price to settle at about $0.87 a liter for 2008 as a whole.

Fuels costs amount to the single largest expense for airlines, and the only solution that Air Canada (AIDIF.PK) and WestJet Airlines Ltd. (WJAVF.PK) have in the near term is to raise prices to offset the increase in fuel prices, Mr. Doerksen said. He expects WestJet, which he has a “hold” rating on, will likely have to raise fares 5.3% to fully offset the price of fuel. Air Canada, which he has a “sell” rating on, would have to raise prices 8.9% to do the same.

“In the context of apparently slowing economic growth, we doubt that air fares will increase enough in 2008 to fully offset the fuel price increase,” Mr. Doerksen said in a note to clients.

The analyst lowered his price target for Air Canada to C$7 from C$8, accordingly, and lowered his 2008 earnings estimate for WestJet to C$1.25 a share, down from C$1.45. He also has a new price target of C$18.75 on WestJet, down from C$21.75.